NY: Insurers shouldn’t charge hurricane deductibles

Long Island residents hit hard by Hurricane Irene got some good news Thursday when state regulators ruled insurers shouldn’t try to impose “hurricane” deductibles, which could significantly increase amounts residents would have to pay before their coverage kicks in.

Benjamin M. Lawsky, the state’s superintendent of the Department of Financial Services, said because Irene was designated a tropical storm, not a hurricane when it hit New York, hurricane deductibles shouldn’t kick in.

“Therefore hurricane deductibles should not apply on homeowners’ insurance policies,” Lawsky said. “Homeowners should not have to pay this deductible and insurers should be aware that the Department will make sure they are not hitting consumers with a hurricane deductible.”

Most homeowner policies have standard deductibles set based on fixed numbers, such as $500 or $1,000, but hurricane deductibles, typically based on a percent of a property’s value, are often higher.

If insurers imposed these provisions, homeowners could be hit by thousands of charges before coverage kicks in.

A 5 percent deductible on a $300,000 home, for instance, would be $15,000, a huge difference from the more typical deductibles without that provision. Hurricane deductibles are customary in 18 states and the District of Columbia.

Hurricane deductibles kick in when sustained hurricane force winds of 74 miles per hour or greater are measured by the National Weather Service. Irene fell short of that, providing some financial relief to property owners.

“Almost everybody on Long Island has their hurricane deductible listed as a percentage on their declarations page,” said Michael Barry, a spokesman for the Insurance Information Institute, in Manhattan. “It’s been many years since there has been a severe wind storm in Nassau and Suffolk counties. While the hurricane deductible is listed in a prominent place, not everybody reads through their policy closely.”

Insurers as of 1993 began imposing hurricane deductibles in New York and many other states, after Hurricane Andrew hit.

“The industry’s been concerned about the implications of a major hurricane hitting places like the Jersey Shore, Long Island and Connecticut and places like Cape Cod for more than a decade,” Barry said.

Hurricane deductibles have become standard on the East Coast, as insurers seek some protection, while still providing coverage.

“Due to increased coastal development and greater hurricane risk, hurricane deductibles were created to help keep private sector property insurance coverage available and affordable by having the policyholder share more of the risk with their insurer,” Insurance Institute Vice President Loretta Worters said in a written statement.

Although Irene didn’t trigger hurricane deductibles, it attracted attention to these riders, which could kick in if winds had been stronger.

Lawsky said some people are being told their flood insurance doesn’t cover the damage from the storm. But he said flood insurance does covers flooding reltaed to Irene “and no insurer should even think about not honoring its commitments under a flood insurance policy.”

Lawsky issued his statement after Thomas B. Considine, New Jersey’s Commissioner for Banking and Insurance, weighed in with a similar conclusion.

“The National Weather Service did not report winds in New Jersey meeting all of the above regulatory criteria,” Considine wrote in his decision, requiring insurers not to impose these provisions. “Accordingly, no mandatory or optional hurricane deductible should be applied to the payment of claims for property damage attributable to Hurricane Irene.”